03 January 2012

Why do some local governments deliver public services directly while others rely on providers from the private sector? Previous literature on local contracting out and on the privatization of state-owned enterprises have offered two competing interpretations on why center-right governments rely more on private providers. Some maintain that center-right politicians contract out more because, like Adam Smith, they believe in market competition. Others claim that center-right politicians use privatization in a Machiavellian fashion; it is used as a strategy to retain power, by ‘purchasing’ the electoral support of certain constituencies. Using a unique dataset, which includes the political attitudes of over 8,000 Swedish local politicians from 290 municipalities for a period of 10 years, this paper tests these ideological predictions together with additional political economy factors which have been overlooked in previous studies, such as the number of veto players. Results first indicate support for the Machiavellian interpretation, as contracting out increases with electoral competition. Second, irrespective of ideological concerns, municipalities with more veto players in the coalition government contract out fewer services.

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"Because the consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else." (Lucas 1988, On the Mechanics of Economic Development)

"The philosophers have hitherto only interpreted the world in various ways; the point however is to change it" (Marx 1888)

I'm Head of Research at Ark Education Partnerships Group, a charity working with governments and non-state actors in developing countries to give every child an excellent education. Roving Bandit is a reference to Mancur Olson, not because I think I'm some kind of badass.